Trade Competition between China and Japan

Chia Siow Yue (2003) investigated that the future of ASEAN-Japan economic relations needs to be assessed in the context of three factors. First, one should consider the background of how economic relations have developed between Japan and ASEAN countries since the 1960s in the areas of trade in goods and services, FDI, and the development of production networks, and technical and

27

development assistance in broad-ranging areas. Second, one should look at the current challenges posed by the economic rise of China. Competition from China was a growing reality for Japan and ASEAN. Unbridled economic rivalry would be disastrous for regional peace, stability, and prosperity, so Japan and ASEAN would have to manage their economic relations and competitiveness vis-á-vis China in such a way as will result in a win-win outcome. Third, future ASEAN-Japan economic relations should have to be considered in the context of East Asian regionalism. The rise of East Asian economic regionalism was both an opportunity and a challenge for ASEAN. In terms of opportunity, ASEAN countries would belong to a larger economic grouping and enjoy not only wider market access, but greater international clout, as well as greater regional peace and order.

Kitti Limskul (2004) discussed that trade creation of Intra-ASEAN was becoming significant. Nevertheless, the skewed trade relationship between ASEAN and Japan has caused trade deficit for ASEAN. This cannot be solved simply relying on FDI. The bilateral trade arrangement or FTA could not solve problem at hand as Japan was reluctant to open its market for agriculture product and processed food from ASEAN. The ‘multi-functionality of agriculture’ was key excuse for protection. The international trade and investment relationship has changed since the emergence of China. The trade creation of trade in Japan-ASEAN-China was sufficient condition of welfare optimization, adding on top of the flow of FDI and ODA as necessary condition. The ‘Initiative for Japan-ASEAN Comprehensive Economic Partnership’ could be materialized only if the trade creation could be

28

significantly achieved among Japan-ASEAN-China, step-by-step along every stage of comparative advantage.

Jacob Townsend and Amy King (2007) examined Sino-Japanese competition for influence in Central Asia. Both countries view the region as an important source of energy reserves and have used trade, foreign aid, and diplomacy and security cooperation to exert their influence over the Central Asian republics.

The article analyzed the parallel strategies undertaken by Japan and China in Central Asia. It demonstrated that, compared with China, Japan's relationship with the region was both superficial and declining. As a result of China's deep and growing economic, political and military ties, this article concluded that Japan is losing the Central Asian "game" and that China will have far greater success in obtaining Central Asian energy resources .

Ji-hyun Park (2002) reviewed that amid changes in trade following China’s entry into the WTO, trade of farm products between Korea, China and Japan was expected to raise further, heating up competition between the three countries. Korea was positioned as an importer of farm products from China and exporter to Japan, as the three countries become more dependent on each other for trade. Currently China’s export of field-grown vegetables such as onions, carrots and radishes were mostly destined for Japan, but export to Korea was also steadily rising. Korea was increasingly importing more condiment vegetables from China while the export of greenhouse vegetables such as tomatoes, cucumbers and eggplants was mostly concentrated on Japan, and was expected to further rise with lower production, yet higher demand in Japan. While exporting vegetable seeds to Korea and China,

29

Japan was increasingly importing more farm products, especially fresh vegetables, from these countries .

Jae Cheol Kim (2009) discussed that China and Japan have displayed severe competition against each other to woo ASEAN countries, which was triggered by what we call the rise of China. It was China that took the initiative to bolster its presence in Southeast Asia by proposing the China-ASEAN FTA in 2000.

China believed that building a cooperative relationship with ASEAN would well serve its interest in creating a peaceful environment in the region, which it needed for developing its economy. In early 2002, right after China agreed with ASEAN to build a FTA, then Japanese Prime Minister, put forward the “Koizumi Initiative”

and signed a free trade agreement with Singapore, the first bilateral FTA for Japan.

Since then, the competition between China and Japan has become intense, the former trying to outmaneuver the latter but only being countered by the latter.

China has generally kept ahead of Japan by moving faster in promoting cooperation with ASEAN .

Tan Jing-rong and Wang Zhen-qian (2008) used product similarity index and revealed competitive advantage to calculate the overall relationship of competition, the intensity of competition and the strength of competition of China, Japan and the Republic of Korea. The paper worked out as a result that the three countries have a relatively apparent competitive relationship in the American market, the competitive intensity of some kinds of agricultural products were on a trend of ascending, but the gap of competitive strength was still big .

30

G. Gaulier et al. (2007) found that Asian trade is increasingly driven by the international segmentation of production processes within the region, a trend which has been accelerated by the rise of China as a major partner in production networks.

Asian trade is more and more centered on China but the region records growing trade surpluses in final goods with the rest of the world. As China has become an export plate-form for multinational firms, the driving force of Japan's trade shifted from exporting final goods to North America and Europe towards exporting components to China, and from importing final goods from America, Europe and the Dragons towards importing these goods from China. The Dragons' trade also switched away from Japan and NAFTA and towards China. The sourcing strategies of multinational firms have led to a reorganization of production which has weakened trade between the advanced economies but up to now has not severely affected the position of Asian emerging economies (Malaysia, Philippines, and Thailand) in international trade.